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In Context
- Recently, the Bank unions had done a nationwide strike against the proposed privatisation of public sector banks (PSBs).
Background
- The government has planned to lay the Banking Laws (Amendment) Bill, 2021 during the Winter Parliament session.
- Earlier, the government passed a bill that will allow the privatisation of state-owned general insurance companies, through the General Insurance Business (Nationalisation) Amendment Bill, 2021.
Banking Laws (Amendment) Bill, 2021
- The Bill aims to amend banking companies acquisition and transfer laws of 1970 and 1980 and the Banking Regulation Act, 1949 to achieve privatisation of two PSBs to meet disinvestment targets as stated by finance minister Nirmala Sitharaman in the Union Budget 2021-22.
- The Central Bank of India and Indian Overseas Bank can be 2 candidates for the bank privatization move.
- This will bring down the minimum government holding in the PSBs from 51% to 26%.
Evolution Of Banking In India
Why Banks Were Nationalised in India?
Drawbacks of Nationalisation
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What is Privatisation?
- Transfer of ownership, property or business from the government to the Private sector.
- It is considered to bring more efficiency and objectivity to the company, something that a government company is not concerned about.
- Following the industrial policy of 1991, the government has adopted disinvestment, strategic sale of minority shares to private partners and selling of loss making units to the private sector.
Need for Privatisation
- Aggravated high Non-Performing Assets (NPAs) and stressed assets amidst pandemic.
- To strengthen the strong banks and also minimise their numbers through privatisation to reduce its burden of support.
- Less effective bank mergers & infuse better management policies.
- No political interference & prompt decision making.
- More profitability & accountability to shareholders.
- Improves inflow of Foreign Direct Investment (FDI) or investment.
- Recommended by Narasimham Committee (proposed 33% govt. stakes), P J Nayak Committee (
), RBI Working Group, etc. - Better use of technology by private banks.
Arguments Against
- Performance Concerns (Lakshmi Vilas Bank’s operational issues, ICICI bank’s dubious loans sanctions, Yes Bank case etc.)
- This move will result in financial exclusion and promote crony capitalism.
- This will remove the sovereign guarantee behind the PSB deposits and make household savings less secure.
- Under Reporting of NPAs– 2015 Asset Quality Review by RBI.
- Concerns of successful disinvestment.
- Defeats goal of financial inclusion (failed Priority Lending Targets).
- Non-sharing of government’s social responsibilities (Violation of DPSP under Article 38).
- Privatisation will shrink employment opportunities for Scheduled Castes, Scheduled Tribes and Other Backward Classes (OBC) since the private sector does not follow reservation policies for the weaker sections.
Way Forward
- Privatise only non-functioning PSBs.
- Strengthen RBI’s regulation over PSBs.
- Implement Kotak committee recommendation of corporate governance.
- Conversion of PSBs into corporations like Life Insurance Corporation (LIC).
- Improve NPA recovery, reduce loan defaults and introduce greater transparency in credit allocation.
Source: HT
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